Ickenham Travel Group Limited v Tiffin Green Limited

The claimant, a travel company, sued its former auditors for breach of contract and negligence for failing to detect substantial accounting irregularities and an understatement of trade creditors across audit reports from 2014 to 2017. The court found that the auditors had breached their duties and that the audits were seriously defective, but the claimant failed to prove that it suffered any loss caused by those breaches. Key grounds for dismissal were (1) absence of loss on the sale of the business division BTD because the sale price to Reed & Mackay represented market value, and (2) failure of factual causation because Ickenham could not show it would have been in a materially better position if the auditors had identified the understatement in 2014. The court also rejected the claimant’s claim for professional fees as not caused by the auditors’ breaches and addressed limitation: the contractual claim in respect of the 2014 audit was time-barred while the tortious claim fell within the s.14A Limitation Act 1980 exception.

This is a first-instance trial of a professional negligence and contract claim brought by Ickenham Travel Group Limited against its former auditors, Tiffin Green Limited, arising from undiscovered accounting irregularities in the claimant’s consumer travel division (LG2) that produced a material understatement of trade creditors. The claimant alleged that had the auditors identified the understatement earlier (at least from 2014), it would have avoided having to sell its business travel division (BTD) at an undervalue in 2019 and would not have incurred certain professional fees.

Nature of the claim: damages for negligent and/or contractually wrongful audit work; relief sought was compensatory damages for loss on sale of BTD (£6m alleged shortfall) and about £300,000 of professional fees.

Procedural posture: High Court (Commercial Court), five hearing days, evidence from five factual witnesses and two experts; no fact witnesses were called for the defendant because of death/illness; the judge declined to draw adverse inferences.

Issues framed:

• Whether the auditors breached duties in contract or tort.
• Whether the claimant suffered loss on the sale of BTD and, if so, whether that loss was caused by the auditors’ breaches (factual causation).
• Whether the claimant’s professional fees were recoverable and causally connected to the auditors’ breaches.
• Whether the pleaded case was adequate given uncertainty about the precise cause of the accounting understatement.
• Limitation: whether claims based on the 2014 audit were time-barred or caught by s.14A Limitation Act 1980.

Court’s reasoning (concise): experts agreed the audits were seriously defective and a reasonably competent auditor probably would have identified the fundamental accounting breakdown; accordingly Tiffin Green breached its duties. On the merits of loss and causation, the court concluded that (a) the transaction with Endless (an earlier prospective buyer relied on by Ickenham) was speculative and by May 2019 had become an insubstantial prospect (less than 10%), so the Reed & Mackay terms reflected market value; (b) the changes in Reed & Mackay’s payment terms resulted largely from BTD’s working capital position and post-sale concerns about LG2, not from the auditors’ failure to detect the understatement; and (c) there was no proper evidence that different steps or funding options would have been available in 2014 so as to avoid the 2019 outcome. The professional fees were likewise not shown to be caused by Tiffin Green’s breaches. On limitation, the contractual claim in relation to the 2014 opinion was out of time, but the tort claim fell within s.14A because Ickenham only acquired requisite knowledge in February 2019.

Disposition: judgment for the defendant; the claimant’s claims failed for lack of proved loss and causation despite established breach.

This is a first-instance judgment. The claim is dismissed and judgment is entered for the defendant. Although the auditors breached their duties and the audits were seriously defective, the claimant did not prove loss on the sale of BTD or that any loss or the professional fees were factually caused by those breaches. The contractual claim relating to the 2014 audit was time-barred; the tort claim in respect of 2014 was within the s.14A Limitation Act 1980 starting date.